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Flexi cap funds

  March 6,2021

Flexi Cap Fund: Know About the New Mutual Fund Category

After the multi-cap fiasco, the market regulator, SEBI has introduced a new mutual fund category called Flexi Cap funds. 

Multi cap fund is a category of equity fund that can invest in large cap, mid-cap and small-cap stocks. However, these funds focused more on large caps and fund managers invested a significant portion of the portfolio in large-cap stocks. To make multi cap funds true to its label, SEBI directed fund houses to invest a minimum of 25% of the fund’s portfolio in large cap, small cap and mid-cap stocks.

What is a Flexi Cap fund?

In the first week of November, SEBI introduced a new category under Equity Schemes called Flexi Cap Fund. Flexi Cap Fund is a mutual fund scheme that can invest across all sizes of market capitalization, i.e., large cap, mid-cap and small cap. Fund houses have to invest a minimum of 65% of total assets in equity assets.

Fund houses can launch a new scheme or convert an existing scheme into a flexi cap fund.

What’s in it for investors?

As a scheme investing across large, small and mid-cap stocks, flexi cap funds are dynamic in nature. The diversified investment also facilitates in mitigating the risks and absorbing financial shocks from a volatile market.

Now fund managers have the flexibility to invest in stocks irrespective of the size, as flexi cap funds can invest dynamically across all market caps.

Companies of different sizes come with their own set of advantages and disadvantages. Depending on the market outlook and current scenario, fund managers can invest in companies that are better suited to fulfill the investment needs of their investors. 

The flexibility of flexi cap funds to invest in companies irrespective of the size is a great benefit for investors. For a risk-averse investor, flexi cap fund is a wise choice, as there is no mandatory percentage of allocation to each cap. Besides, a diversified investment in large cap companies may reduce or counterbalance the risk often associated with mid and large cap companies. 

What about the existing multi cap funds?

SEBI has provided the option to fund houses for converting an existing scheme into a Flexi Cap Scheme. It can simply be a change in the scheme category or with changes in their fundamental attributes.

However, Mutual Funds may also choose not to convert to flexi cap fund as they deem fit. They may also convert these funds into another fund category. In both these cases, their status will remain the same and Mutual Fund House will have to followthe norms and regulations of that scheme category.

What should investors do?

As fund managers can invest in a flexi cap as per their market outlook, it can be an ideal investment option for risk-averse investors. Many mutual fund houses may convert their multi cap schemes to flexi cap fund and continue operating as earlier.

If a fund house has not converted their multi cap fund scheme to flexi cap scheme, investors need to tread carefully as your allocation to mid-cap stocks and small-cap stocks might increase. Until any official announcement from your fund house, you can wait and invest conservatively in the fund.

You can talk to us  to know more.

This blog is purely for educational purpose and not to be treated as an personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.